THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, CNN ANCHOR: Happening now, a top McCain adviser's startling admission about terror politics. Charlie Black quoted as saying a new attack on the United States would be a "big advantage" for the Republican's campaign. We'll have a brand-new response coming in from Senator McCain. He's not happy about this. Also this hour, Barack Obama and Hillary Clinton find a backdrop for unity. We'll have new details of their highly anticipated show of togetherness this week.

Plus, the suddenly silent Clinton. The former president barely mentions Barack Obama and is mum about the prospect of endorsing him.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

It's a nightmare scenario for the nation, the terror -- the threat of a new terror attack right here on U.S. soil. The consequences would be enormous for any commander in chief, but what about the presidential candidates?

There's been a blunt new admission from John McCain's chief strategist, Charlie Black. He's quoted in "Fortune" magazine as saying a new attack on the United States would be "... a big advantage to John McCain."

Our senior political correspondent, Candy Crowley, is here, together with our own Dana Bash, both of whom are watching this story, a lot of other stories as well.

I know the senator, Senator McCain, only moments ago he reacted to these pretty startling comments, very blunt comments from Charlie Black.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: That's right. And I think we should first say, Wolf, that we've been trying to reach Charlie Black. He's apparently on a plane. His cell phone is going to voicemail. In fact, the campaign is also, as you can imagine, trying to reach Charlie Black to get a clarification or a better explanation of what he perhaps meant in this interview with "Fortune" magazine.

But as you said, Senator McCain did just speak about it. He was asked about it by our own Peter Hanby (ph), and here's what he said.

It's -- I've worked tirelessly since 9/11 to prevent another attack on the United States of America. My record is very clear.

The Armed Services Committee and pieces of legislation, sponsoring with Joe Lieberman the 9/11 Commission, so we could find out the causes and how to fix the challenges that we face, the security of this nation. I cannot imagine it. And so I would -- if he said that -- and I do not know the context -- I strenuously disagree.

(END VIDEO CLIP)

BASH: So there you hear what Senator McCain said to reporters just a short while ago in Fresno, California.

But it's important to note, Wolf, I was actually with Senator McCain the very day that Benazir Bhutto was assassinated. And Charlie Black, in this "Fortune" magazine interview, talks about the fact that that is something that helped his campaign. And I remember that morning he came out, Senator McCain, right off the bat and said that he knew Benazir Bhutto, that he knows the region, talked about trips that he had taken to Pakistan, to Waziristan.

He really did understand from that moment that this is something that he thought could help him in the race at that point to be the Republican nominee. In fact, at that event, that very day, I asked Senator McCain if he thought it would help his political campaign, and he said pretty much yes. He said, "I'm the one with the experience, the knowledge and the judgment. So perhaps my service could enhance those credentials."

So it's not a secret that back then Senator McCain and his campaign thought it would help.

BLITZER: And it did help him. That was in December, and it was just before New Hampshire. He desperately needed to win that first primary in the nation in January in New Hampshire. And Charlie Black rather bluntly says, you know what, that threat, as underscored by the assassination of Benazir Bhutto, wound up helping him politically.

BASH: That's right. That is clearly what he says in this interview. The open question is what he meant when he talked about any future terror attack, because we haven't heard from the Democrats yet, but I imagine that they're going to talk about the fact that this is just like George W. Bush playing on the politics of fear.

Again, we're still waiting to hear from Charlie Black about what he meant.

BLITZER: All right. As soon as you do, let me know, and we'll let our viewers know as well.

Candy Crowley, let's bring you into this conversation right now.

And factually, Charlie Black may have a point, because polls suggest McCain certainly does -- certainly does have an advantage over Obama when it comes to the war on terror. Most recently, the latest "USA Today"/Gallup poll shows 52 percent of Americans think McCain would do a better job on terror. Thirty-three percent say Barack Obama would do a better job on terror.

So the question to you, Candy, is does Barack Obama have a problem when it comes to dealing with the war on terror?

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT: Well, look, this is what we know. We know that the one significant advantage that John McCain has in the polls, when you lay all those issues out there, is the war on terror. Even in the war in Iraq, he runs basically even with Barack Obama. So they obviously know this.

I think the problem with John McCain and this Charlie Black comment is that, you know, a future terrorist attack in the U.S., we're still pretty raw from 9/11. And it's become this kind of third rail to say it.

It's not that we haven't discussed it, you know, what's the political advantage here. But it has this really harsh sound.

So, I agree with Dana, I think you may see the Democrats come out and talk about this. And in fact, this is something that Barack Obama did accuse Hillary Clinton of earlier on, trying the politics of fear, that kind of thing.

BLITZER: Let's make the turn now to a show of unity by the Clinton and Obama forces, because we learned today where this big meeting, this big public meeting that Hillary Clinton and Barack Obama will take place.

CROWLEY: They're going to have a Unity for Change rally, and it will be in Unity, New Hampshire, a place where they tied 107 votes a piece. So if you don't get this sort of a subtle approach, this is going to be the only event that the two of them do, at least on Friday. And obviously full of symbolism.

What he wants to do and what she wants to do is say, here we are together, we all need to come together. And by the way, it's preceded, as you know, by a fund-raiser, which may be sort of practically at this point a little more important, where Thursday night Hillary Clinton will be introducing Barack Obama to some of her big fund-raisers.

BLITZER: That fund-raiser is here in Washington, right?

CROWLEY: Yes.

BLITZER: And so we'll be watching that, we'll be watching what happens in Unity.

CROWLEY: Unity.

BLITZER: And we're also going to be watching -- we have a report coming up later -- on Bill Clinton and what's going on with him, because he hasn't spoken a lot about Barack Obama, if at all lately.

All right, guys, thanks very much.

A quick note on John McCain's appearance today in California.

We noticed two bandages on his forehead just above the hairline. McCain was asked about it. He told reporters he hit his head on the roof of the car he was riding in during his recent visit to Canada. It was not part of his usual motorcade.

There you see those bandages atop his head.

And as you know, Candy Crowley and Dana Bash, they're both part of the Emmy Award-winning best political team on television. And Dana will be back later to report on McCain's plan to reduce America's dependence on foreign oil. He had a new initiative that he announced today.

Also remember this: For the latest political news anytime, you can check out our Political Ticker at CNNPolitics.com. The ticker now is the number one political news blog on the Web. That's also where you can read my latest blog post. I just posted one.

Let's go to Jack. He's got "The Cafferty File" for another week.

Hi, Jack.

JACK CAFFERTY, CNN ANCHOR: People saying stupid things during political campaigns is nothing new. But occasionally, once in a while, something comes along that is simply breathtaking in its stupidity.

A top John McCain adviser says that another terror attack on the United States would help his candidate's chances of winning the election in November. Chief McCain strategist Charlie Black told "Fortune" magazine the assassination of former prime minister of Pakistan Benazir Bhutto last year was an unfortunate event, but McCain's "knowledge and ability to talk about it reemphasized this is the guy who is ready to be commander in chief, and it helped us."

Black also said another terror attack on U.S. soil would be "a big advantage" to John McCain. Who says these things?

Black has come under no small amount of fire for his work on behalf of an international assortment of goons, thugs, autocrats and dictators from whom he took tons of money as a lobbyist in exchange for arranging access to the power corridors of Washington, D.C. Black has since resigned his work as a lobbyist, but he's still working full time at saying dumb stuff.

Here's the question: Should McCain adviser Charlie Black be fired for saying a terror attack would help McCain's chances?

You know the address. Go there and write something.

BLITZER: And they will by the hundreds, Jack, if not by the thousands. Thanks very much.

While Hillary Clinton is ready to stand side by side with Barack Obama, her husband apparently has no plans to join the Unity tour, at least not right now. We'll consider what Bill Clinton may be thinking.

Plus, racial politics and prejudice, how big of an impact on Barack Obama's campaign will they have? And how does it compare to the age factor for Senator McCain?

And McCain is offering a big cash prize to help ease America's oil addiction. This hour, McCain and Obama economic advisers, they'll go head-to-head on these issues driving this election.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: When's the next time we'll see an image like this one from last year, a picture of dramatic harmony that includes Bill Clinton? Many Democrats wonder when a new snapshot will emerge showing Bill Clinton openly embracing his party's presumptive nominee.

Let's go to Jim Acosta. He's watching this story for us in New York.

Jim, some people are looking at what Bill Clinton didn't do this weekend when given a chance.

UNIDENTIFIED FEMALE: President Clinton, will you be endorsing Barack Obama?

ACOSTA: Not only did he steer clear of that question, at a mayors' conference Sunday, Mr. Clinton barely mentioned Obama my name, briefly praising the presumptive nominee's environmental plans.

WILLIAM JEFFERSON CLINTON, FMR. PRESIDENT OF THE UNITED STATES: I favor that Senator Obama's position, which is to go to 80 percent reduction in greenhouse gases, over Senator McCain's position, which is to go to 70. But the point is, that's light years ahead of where the Republicans have been.

SEN. HILLARY RODHAM CLINTON (D), NEW YORK: I endorse him and throw my full support behind him.

ACOSTA: It's also light years from Hillary Clinton's rousing endorsement two weeks ago. And while she and Obama will campaign together later this week, so far there appear to be no such plans for the other Clinton.

W. CLINTON (voice-over): I was born in a little town called Hope, Arkansas, three months after my father died.

ACOSTA: A pairing of Mr. Clinton and Obama on the campaign trail would unite the man from Hope with the man who wrote "The Audacity of Hope." They have similar biographies. Obama was abandoned by his father. Mr. Clinton's father died before he was born. Both skyrocketed to political stardom.

W. CLINTON: This is what you live for. But this hurts the people of South Carolina.

ACOSTA: Then there's the other Bill Clinton.

LARRY SABATO, UNIVERSITY OF VIRGINIA: When Bill Clinton is on message, there's nobody better. When Bill Clinton is off message, he is very, very bad.

ACOSTA: Some political analysts see Mr. Clinton simply jockeying to get his wife on the ticket.

SABATO: You don't give something for nothing. You know, ideally, Hillary would love to get the vice presidential spot. But if she can't have that, she wants some other things. Bill knows it, and he's reacting accordingly.

(END VIDEOTAPE)

ACOSTA: The other possibility is that the former president would rather wait and give Senators Obama and Clinton their moment in the sun together, this Friday, in of all places, Unity, New Hampshire, where, by the way, each of those candidates got 107 votes -- Wolf.

BLITZER: I'm sure it will happen at some point. The question is when.

All right, Jim, thanks very much.

Scores of white and African-American supporters have rallied around Barack Obama, helping make him American history right now, being the first black to lead a major political party in a run for the White House. But translating that into the ultimate political prize could depend on how a number of Americans feel about his being black. There's a new poll that assesses some racial prejudice out there.

What does this new poll reveal, Bill, about the impact of race in this upcoming election? WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Well, Wolf, according to the report from ABC News, which did the poll in collaboration with "The Washington Post," "Obama's race shows little, if any, net effect on vote choices overall."

Now, I would say that's good news.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): First, the bad news. About three in 10 Americans, 30 percent of whites and 34 percent of African-Americans, acknowledge having at least some feelings of racial prejudice.

Now the good news. Those feelings don't seem to affect the vote, according to "The Washington Post," which co-sponsored the poll with ABC News. Post columnist Colby King puts it this way...

COLBY KING, "WASHINGTON POST" COLUMNIST: I think it's a very race-conscious country. That doesn't necessarily mean it's a prejudiced country. It's just conscious. And that's what we are as a country.

SCHNEIDER: Nearly a quarter of Americans say the race of the candidates will be an important factor in their vote for president. Forty percent, almost twice as many, say the age of the candidates will be important.

Thirty-nine percent of whites who say race is not important are voting for Obama. But Obama gets the same support from whites who say race is important, which suggests that the white votes Obama is losing because he's black are counterbalanced by white votes he is gaining because he's black.

KING: I think that people recognize the historic nature of this election and would like to be able to support a candidate who represents, I think, where America's going.

SCHNEIDER: On the other hand, the age factor seems to be hurting John McCain.

MCCAIN: My friends, I'm not the youngest candidate, but I am -- but I am the most experienced.

SCHNEIDER: Voters who say the age of the candidate is not important are voting for McCain. Those who say age is important are voting nearly 2-1 for Obama.

(END VIDEOTAPE)

SCHNEIDER: You have to worry that people will not express their true feelings about race to a poll interviewer or even to themselves. They may not feel the same inhibitions, however, about age. They may see age as less of a prejudice and more of a legitimate concern. But the legitimate concern should not be age, but the health and physical capabilities of the candidates -- Wolf.

BLITZER: Thanks very much, Bill Schneider. Good points, as usual.

John McCain is borrowing a page from some game shows. He's hoping a cash prize will produce a better way to save fuel for all of us. We'll have details.

Also coming up, a new move by Hillary Clinton to wipe out her huge campaign debt and reconnect with her colleagues in Congress.

(COMMERCIAL BREAK)

(NEWSBREAK)

BLITZER: McCain and Obama economic advisers, meanwhile, they're standing by live right here in THE SITUATION ROOM. We're going to get them to weigh in on the new dustup for the McCain camp, a quote from a top McCain strategist suggesting a new terror attack on the United States would become a political advantage for the Republicans.

Plus, an eye-catching addition to the Obama campaign vanishes.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, new developments to a story that's left many of you scratching your heads. Did a group of female high school students in Massachusetts make a pact to get pregnant and raise their babies together? The mayor of the town in question comes out, reveals what she knows about this.

We'll have details.

What he says versus what they say. Barack Obama and the White House are talking about why we're paying high oil and gas prices, but they disagree on several things, including one specific thing.

And as Condoleezza Rice pushes peace in the Middle East, why is Hamas likening her to a snake that's trying to kill a cease-fire between Hamas and Israel?

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

John McCain is adding a new page to his energy plan today, and it comes with a big cash reward.

Let's bring in our Dana Bash once again. She's watching this story for us.

He's trying to promote fuel efficiency, which is a critical subject, as we all know, Dana, but he's offering a financial incentive. What is he doing?

BASH: Well, you know what he's offering, if you talk to Democrats, they're already calling that financial incentive nothing more than a gimmick. But McCain calls it an innovative idea to promote innovation.

(BEGIN VIDEOTAPE)

BASH (voice-over): John McCain wants to reduce America's dependence on oil with an age-old idea: a contest, and the promise of a lot of cash.

MCCAIN: A $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.

BASH: Three hundred million dollars for a new battery that delivers power at 30 percent of current costs.

MCCAIN: One dollar for every man, woman and child in the U.S.

BASH: Throughout McCain's central California speech, a new tone that underscores the urgency of gas price politics. He also proposed something that he usually shies away from -- a tax credit.

MCCAIN: For every automaker who can sell a zero-emissions car, we'll commit a $5,000 tax credit for each and every customer who buys that car. For other vehicles, whatever type they may be, the lower the carbon emissions, the higher the tax credit.

BASH: And he pushed stiffer fines for car companies that pay a penalty rather than abide by so-called CAFE fuel efficiency standards.

MCCAIN: CAFE standards should serve large national goals in energy independence, not the purpose of smalltime revenue.

BASH: McCain also blasted barriers to sugar-based fuel from Brazil and government subsidies for ethanol, saying it distorts the market.

MCCAIN: Corn-based ethanol, thanks to the money and influence of lobbyists, has been a case study into the law of unintended consequences.

BASH: That, a not so subtle hit at Barack Obama, a supporter of ethanol subsidies whose ties to lobbyists were detailed in the morning's "New York Times." Obama advisers insist he's always supported ethanol subsidies, and that's just one area the candidates differ on energy ideas.

BASH: McCain often warns that Obama would bring another term of Jimmy Carter, but today he likened President Bush to Jimmy Carter. Wolf, he said that today's times feel like they did in the 1970s, the era of "stagflation."

BLITZER: Thanks very much, Dana, for that. Let's talk about energy politics and more with our guests. For that, we're joined by Nancy Pfotenhauer. She's a senior policy adviser and spokesperson for the McCain camp. Also joining us, Robert Reich, the former Clinton labor secretary. He's an outside adviser on economic matters to the Barack Obama campaign as well.

Thanks to both of you for coming in.

NANCY PFOTENHAUER, MCCAIN POLICY ADVISER: Thank you.

And Mr. Secretary, let me get your reaction, first of all, to Senator McCain's proposal for a cash reward for someone who can come up with this idea of a new battery to power cars and save us a lot of money in the long term, save us a lot of pollution and energy costs.

What do you think about this idea?

ROBERT REICH, FORMER LABOR SECRETARY: Well, I think prizes are great, Wolf.

I will tell you something. For somebody who purports to believe in the free market, as Senator McCain does, the market would give a huge prize, I mean, just a huge profit prize, to anybody who came up with a clean-burning car. I mean, you know, the market doesn't need prizes to make sure that there's a big lure out there for somebody to do this kind of thing.

BLITZER: Nancy?

PFOTENHAUER: Well, actually, the data on this is very clear, that prizes work. And it's been tried in other countries as well.

If you set out a goal, if you will, and then put a price tag on it, a prize or a bounty, what it does is, it generate tons of investment. I think, when it was tried in Scotland, a $10 million or $20 million prize resulted in about $200 million investment in the technology.

It's much more efficient than working through the government bureaucracies, because bureaucracies -- first of all, taxpayers pay for it whether the objective is met or not if it's done through bureaucracies. Also, bureaucracies really just want a constant level of money. They're not as focused on results.

And, so, this is a well-established way to try to generate a lot of interest, enthusiasm and innovation.

BLITZER: All right.

PFOTENHAUER: And it would be to the benefit of this country environmentally.

REICH: Well, Wolf, if I could just -- just quickly say, nobody is defending bureaucracy.

But I think that Barack Obama's plan -- and that is to charge oil company guys a windfall profit tax -- not on their profits, but on their windfall profits -- and use a portion of those to really stimulate wind and solar and new alternative technologies, not just through prizes and gimmicks, and, you know, that other gimmick, which was the gas tax holiday this summer, but through real problems that actually will generate real new technologies. That seems to me a much better program.

BLITZER: All right. Let me let Nancy respond.

ExxonMobil, Chevron, they're making record profits. Can't they afford to give a small percentage of those profits back to the American people, so, perhaps, they could save a few bucks down the road?

PFOTENHAUER: Well, we have been there and done that. And what we find out that is a windfall profits tax lowers domestic production, increases our reliance on foreign oil, and raises prices to consumers.

It also, by the way, brought in about a quarter, only about a quarter of the revenue it was projected to bring in last time, because domestic production fell. It's economic masochism. It punishes domestic producers, doesn't do anything but increase our reliance on foreign oil. It is a lousy proposal, and it's been tried here and failed before. And it would -- and if it was tried again, it would fail.

(CROSSTALK)

BLITZER: Hold on. Hold on. Hold on, Mr. Secretary.

What she didn't say is what John McCain and others in the McCain camp have said. It's got the fingerprints of Jimmy Carter all over it.

PFOTENHAUER: All over it.

BLITZER: Since that's when it was tried, and they claim that it failed.

REICH: John McCain doesn't want to talk about past presidents. His drill, drill, drill approach has the fingerprints of George W. Bush all over it.

But let me just say, with regard to -- with regard to a windfall profits tax, we haven't seen anything like this before. We have never seen gas at the pump at $4 a gallon. We haven't seen oil companies -- you know, ExxonMobil just reporting a $12 billion first-quarter profit. I mean, they are raking in money. They are not using all this money for new exploration.

(CROSSTALK)

BLITZER: But, Mr. Secretary, let me ask -- we spoke -- we spoke with Dave O'Reilly, the chairman and CEO of Chevron, the other day here in THE SITUATION ROOM, and he makes the point that their percentage of profits is consistent with what other big companies are doing across the United States.

And I guess the bottom line is, why should they be punished for doing for -- for their business practices?

REICH: There's no issue of punishment here, Wolf.

I mean, the American economy is at stake. People are really suffering with regard to $4-a-gallon gas. And all we're saying, and all Obama is saying, is that, with regard to the windfall profits -- these are the extra profits over and above ordinary profits -- you take a portion of those and you put them in alternative energy. They are not doing that.

(CROSSTALK)

BLITZER: All right.

Go ahead, Nancy.

REICH: They're not even -- they're buying their stock back to prop up their stock.

PFOTENHAUER: Hey, let me get in on the conversation here.

Obama has no plan in the short term to help at all. And he really has no plan in the long term either. His answer is no. It's no to drilling. It's crazy not to try to increase domestic production. It's no to drilling. He's going to tax oil, natural gas, and coal.

It is the perfect storm of bad energy policy. And it's going to kill consumers. And it's a terrible policy, terrible approach to take, particularly when you think of the fact that energy is the component of virtually every good and service or product that is produced and purchased in this country.

BLITZER: All right.

PFOTENHAUER: And it particularly hurts low-income individuals, because it takes up a greater proportion of their family budget.

REICH: But, Wolf, if I can just respond, I mean, I don't dispute -- in fact, I think that my opponent there said it exactly right. I mean, we want to reduce oil dependency. John McCain says he's against oil dependency, but, on the other hand, he is -- his policy is mainly drill, drill, drill, and this silly gimmick of a -- of a tax holiday during the summer that every economist, every economist, bar none, has said is just a silly gimmick. This is going to get us nowhere.

BLITZER: All right.

REICH: We have got to go into alternative energies.

BLITZER: How much of a problem -- and I think probably both of you will disagree on this -- maybe not -- how much of the -- of a problem is the price for a gallon of gas right now, the price of a barrel of oil, the result of speculators, of traders out there driving up the price? Because the Saudis say that's the single biggest cause of this dramatic increase.

Nancy, let me go to you first.

PFOTENHAUER: Well, I think it's a cause of concern. And, obviously, you have got a couple of different government agencies already investigating this.

Our position is that you have got a number of different financial instruments, and they are not all -- they are not all regulated the same. And we believe that there needs to be, you know, a thorough investigation into what's going on, and that we need to make sure that every financial instrument is treated the same, and gets the same amount of regulatory oversight.

Right now, there are gas and there's overlapping. And just one comment on the gas tax. I sat in those graduate school classes, the same way that Dr. Reich did. I saw what was on the blackboard and learned it. That is not what played out in reality.

When this was tried in Indiana and Illinois, Joseph Foley (ph) -- I can cite the scholarly analysis -- showed that 60 percent of the savings of the tax -- when the tax was lifted in Indiana and Illinois, was in fact passed through to consumers. There's no reason on earth not to try this.

BLITZER: All right.

Go ahead and respond, and then we will end it. Go ahead, Dr. Reich.

(LAUGHTER)

REICH: OK, Wolf.

I mean, the point is that, if supply is constrained -- and we know supply is limited with regard to oil -- if you actually take the tax off for the summer holiday -- and, by the way, John McCain is not going to be present this summer, so this is a silly conversation anyway.

(LAUGHTER)

REICH: But if you took the tax off, this summer holiday, you would actually increase demand.

(CROSSTALK)

BLITZER: No, but what about the speculators?

(CROSSTALK)

BLITZER: What is the role of speculators?

REICH: Let me just finish the thought. When supply is constrained and demand is released, you get -- you get a huge transfer of wealth to the oil producers.

Now, in terms of speculation, there is some concern -- and I think some valid concern -- about some excessive speculation going on. The problem is, we don't have very much good data, because of the so- called Enron exemption, which, I might add, was put in there partly at the behest of Phil Gramm, John McCain's -- John McCain's adviser.

And because of that, we don't know. The Commodity Futures Trading Corporation should be reviewing and regulating all of those oil futures. And, unfortunately, under present circumstances, it is not.

BLITZER: We will pick up this debate on another occasion, sooner, rather than later. Good work for both of you. Thanks, guys, for coming in.

PFOTENHAUER: Thanks, Wolf.

REICH: Thanks very much, Wolf.

BLITZER: Possible vice presidential picks are getting grilled, if not by the candidates, then by some journalists, eager to know if they're getting any offers.

Listen to this.

(BEGIN VIDEO CLIP)

GOV. TIM PAWLENTY (R), MINNESOTA: We talked about family and sports and politics and the like, but we did not discuss any talk about the vice presidential pick or vetting process or anything like that.

(END VIDEO CLIP)

BLITZER: We're checking in on the McCain and Obama camps, as they search for a perfect Mr. or Ms. Right.

Also ahead, Hillary Clinton is hungry for cash right now. We're going to tell you what she is doing to try to get her campaign out of the red.

We will be taking regular checks of where Barack Obama and John McCain stand in their searches for running mates. A half-dozen Democrats and Republicans were pressed over the weekend by the talk show hosts about their interests in the V.P. slot and whether they have been approached by Obama or McCain.

Here's a sample of their responses.

(BEGIN VIDEO CLIP)

PAWLENTY: I'm very happy with being governor of the state of Minnesota.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP, "MEET THE PRESS")

SEN. JOSEPH BIDEN (D), DELAWARE: Unlike most other people, I'm being straight with you. If asked, I will do it. I have made it clear I do not want to be asked.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP, "FACE THE NATION")

CARLY FIORINA, VICTORY CHAIR, REPUBLICAN NATIONAL COMMITTEE: Anyone would be honored to serve John McCain. And I would as well. But he will have a long list of highly qualified people to choose from.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP, "FOX NEWS SUNDAY")

TOM DASCHLE (D), FORMER SENATE MINORITY LEADER: I'm not seeking the vice presidency. I have not talked to Barack about it. I don't expect to be asked. And I have no interest.

TOM RIDGE, FORMER HOMELAND SECURITY CHIEF: If he asks me, we will have a private conversation, and we will decide whether or not we ought to tell you what we said.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

CONDOLEEZZA RICE, U.S. SECRETARY OF STATE: Eight years is long enough. I don't need another job in government.

(END VIDEO CLIP)

BLITZER: We're going to have a follow-up for you on the Obama campaign seal that was featured at an event last week. And here it comes. Many people noted that it looked conspicuously like the actual presidential seal, and it raised a few eyebrows, as you know. Now the seal is gone, gone.

The Obama communications director, Robert Gibbs, telling CNN it was -- and I'm quoting now -- "a one-time thing for a one-time event."

Remember, for the latest political news any time, check out CNNPolitics.com. That's where you can also download our new political screen-saver. It takes a few seconds to do it. I think you will want to do it. You can also check out my latest blog post as well.

Carol Costello is monitoring some other important stories incoming to THE SITUATION ROOM right now.

Carol, what's going on?

CAROL COSTELLO, CNN CORRESPONDENT: Well, Wolf, there's a dispute brewing in coastal waters off the coast of Southern California, and the Supreme Court is weighing in.

It involves the Navy's use -- the Navy's use sonar and its potential harm to dolphins and whales. The Supreme Court will review a federal appeals court ruling limiting the sonar use during Navy training. The Bush administration argues, limiting the sonar exercises will impair the Navy's ability to prepare sailors and Marines for war.

And a big, big bankruptcy -- the largest construction contractor on Boston's much-maligned transportation project has filed for bankruptcy protection. This comes a day after federal prosecutors claimed Modern Continental Company lied about its work. The company's bankruptcy -- bankruptcy petition lists debts of $500 million to $1 billion -- a quick look at the headlines right now, Wolf.

BLITZER: All right, Carol, thank you.

In our "Strategy Session," third-party politics and John McCain. Could Bob Barr's Libertarian run for the White House cost McCain in some key swing states? Could he do to Republicans what Ralph Nader did to Democrats?

And on the issues, Barack Obama has a lead, but will that lead translate into votes? Paul Begala and Terry Jeffrey, they're standing by live right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Right now, you want to know would John McCain or Barack Obama do better saving you money on gases -- on taxes, or do better regarding your health care, the war on terror? Naturally, the candidates boast they do a better job on all of those critical issues. But how are many of you answering?

There's a brand-new poll that is now out. Let's discuss this and more in our "Strategy Session."

Joining us, or CNN political contributor, Paul Begala -- he's a Democratic strategist -- and the conservative commentator Terry Jeffrey. He's the editor in chief of the Cybercast News Service.

Guys, thanks very much for coming in. And we will put the numbers up there, so you can see them for yourself. Who would do a better job on these critical issues? Obama wins when it comes to health care, the economy, energy, and taxes. You can see right behind you. You can see those numbers, Terry, if you take a look. Obama decisively wins in those four areas.

On three other issues, it's almost like a tie when it comes to who would do better dealing with Iraq, moral values, and illegal immigration, basically very, very close for all three.

Here's where John McCain has a considerable advantage, in this third -- in this third graphic we're going to show you right now. It comes to dealing with the war on terrorism. Fifty-two percent think McCain would do a better job. Thirty-three percent think Obama would do a better job.

BEGALA: It certainly is. But that same poll, that Gallup poll that "USA Today" published today, they also rate the saliency of an issue, how much is this driving your vote.

And the saliency of the terrorism issue is way down. The saliency of the economy is way up. Now, you know, Obama leads on the traditional Democratic issues, like health care, and trails on a traditional Republican issue, like terrorism. But economy, which is probably going to be the linchpin of this election, Obama has a huge lead.

BLITZER: Forty-eight percent to 32 percent...

BEGALA: Right.

BLITZER: .... Terry think that Obama would do a better job dealing with our economy than John McCain.

TERRY JEFFREY, EDITOR IN CHIEF, CYBERCAST NEWS SERVICE: Yes, I think this poll, Wolf, is a very good snapshot of the philosophical battleground of this election.

Quite frankly, John McCain is not going to win this election on the economy. In 2004, the voters told the exit polls, if they decided on the economy, they voted for Kerry in 2004. We had good economic growth, low unemployment then.

However, the most stunning thing in this poll, I think, is that Obama and McCain are tied on the Iraq war. Who would have thought that 16 months ago, or even back in May of 2007? We were taking huge casualties in Iraq. Obama was saying he was going to withdraw our troops. Now the surge that John McCain called for is working.

This campaign is going to be fought over the cultural issues, where this poll says they're tied, and national security, where John McCain has the advantage.

BLITZER: You know, 43 percent and 43 percent, the same number, think these guys would do better dealing with the war in Iraq. So, Terry makes a fair point.

BEGALA: Yes, that's a good point, that the Iraq dynamic has moved a lot since 2006, and largely in Senator McCain's favor.

But, again, it's -- it's not going to be a cultural election. I don't think it's going to be a national security election. Those things will play out. But this is fundamentally an economic election. And two-thirds -- the same poll today, two-thirds of Americans say that they're worried that John McCain will continue George W. Bush's policies.

And it's Bush who is the albatross around McCain's neck.

(CROSSTALK)

BLITZER: And, you know, Terry, if you take a look at these four areas where Obama has a decisive lead, health care, 51-26, economy, 48-32, energy, which is a huge issue, 47-28 -- and taxes, which traditionally is a Republican issue...

JEFFREY: Right.

BLITZER: ... because the American people think Republicans will lower taxes, Democrats will raise taxes, 44 percent think Obama will do a better job on taxes. Only 35 percent believe McCain will.

JEFFREY: Right.

Well, McCain's making a mistake by running to the left on energy and environment with his proposals even today, Wolf. But how ironic it is that all of a sudden, this year, in 2008, we have the Democrats talking about like Paul and his good partner James Carville was saying in 1992, it's the economy, stupid. No one thought that was going to be the issue.

If the economy was not dragging John McCain, he would probably be leading in this election. Again, I don't think John McCain can win this election on the economy. He should confront Obama where Obama is far to the left on some of these things. But if he wins the national security issue, and wins the culture issue, he can be elected in what ought to be a very bad year for Republicans.

BEGALA: If the economy weren't tanking, right? If my aunt had a mustache, she would be my uncle, right? The economy is tanking.

Most voters believe it's because of the Bush/McCain policies. And the fact that John McCain has endorsed every economic position of George W. Bush's, even positions he used to disagree with -- he wants to make the Bush economic plan permanent. He didn't want it to be temporary eight years ago. Now he wants it to be permanent. That's like marrying a girl you didn't want to date. It's incoherent. But it is Bush. And this is the problem that McCain is going to have...

(CROSSTALK)

BLITZER: Let me change the subject to Bob Barr, former Georgia Republican congressman who's now running as the Libertarian candidate.

And here's the question. Could he do to Republicans what a lot of Democrats say Ralph Nader did to them back in 2000, in other words, take enough votes away in some battleground states where it could tip the balance in favor of Obama? And I'm referring especially to the state of Georgia and North Carolina, two states where the Obama campaign thinks they can make some inroads.

JEFFREY: Sure, because, of course, Bob Barr is from Georgia. But -- and that could happen, because it's such a close election we're probably going to see, Wolf.

But I would draw some distinctions between Ron Paul, who did very well in the primaries, who is basically a Libertarian Republican, and Bob Barr. Ron Paul was, first and foremost, an anti-war candidate running at a time, started his campaign when the war was going very badly.

Second, Ron Paul is a social conservative. He's pro-lifer. He's for controlling the border. Since he's gotten in as the Libertarian candidate, Bob Barr has flipped, for example, on the Defense of Marriage Act, a bill that he actually sponsored in the House of Representatives.

It's not clear to me Bob Barr is going to have the same appeal among that element of the Republican constituency that Ron Paul did.

BLITZER: What do you think?

BEGALA: I think McCain is very much a big-government conservative. And I think that leaves an opening for the Libertarian message. Barr being from Georgia, there's 15 electoral votes there. It's not that he would win Georgia.

It's like Darrell Royal used to say about cockroaches. It's not what they carry off, then they take away, that matters. It's what they fall into and mess up. Well, he could fall into Georgia and mess it up for John McCain in a big way.

BLITZER: Especially if Obama gets a huge registration of African-Americans in Georgia, where there's -- there's some fertile ground there.

BEGALA: Which he will. He's already, because of the primaries, he and Hillary Clinton have boosted Democratic registration in Georgia tremendously. So, I think -- I think this could put it in play. I think McCain has got to be plenty worried right now about Bob Barr.

BLITZER: Paul and Terry, we will leave it right there. But we will continue.

BEGALA: Thanks.

BLITZER: Thanks very much.

A priest who created a stir in the presidential race is now making a comeback.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I will not let my faults or imperfections cause me to run, nor will I allow them to cause me to hide.

(END VIDEO CLIP)

BLITZER: But does he regret mocking Hillary Clinton?

Also coming up: Barack Obama reaching out to Muslims, even as he has to distance himself from them. He's getting flak along the way.

And they are a high-profile example of a house divided by the presidential race. That would be Arnold Schwarzenegger vs. his wife, Maria Shriver. We will discuss -- here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Busy news day.

Once again, let's go check in with Jack Cafferty for "The Cafferty File" -- Jack.

CAFFERTY: The question this hour is: Should John McCain adviser Charlie Black be fired for saying a terrorist attack would help McCain's chances of winning the election?

Conor in Chicago: "The fact is, he's right. A terror attack on the U.S. would help McCain's chances significantly. That is precisely why I believe there will be a terrorist attack before the election. I think the Republicans will stop at nothing to remain in power, and that includes allowing an attack to occur. I often wonder about 9/11, given all that happened afterward."

Beverly in Virginia writes: "How dumb are these people? If there is an attack, all the media are going to remind the public how this guy wished for the destruction of Americans so they could win a race, better yet, how Bush allowed the country to be attacked so his buddy could win a race. How about that for a legacy?"

Les in Florida writes: "Why should he be fired? I have heard and read political analysts say the same thing. The logic is that McCain's perceived advantage over Obama on the terrorism issue would be piqued by a terrorist attack. It seems, in this politically correct world, even those who speak the truth now must be fired for doing so."

Brian in Trinidad says: "He ought be fired. This type of statement just gives life to the silly belief by so many that our government deliberately encourages these tragedies to make itself look like a hero coming to our rescue."

Sandy says: "If a Democratic adviser had made a boneheaded statement like this, McCain would be the first one to call for his removal from the campaign. Of course Black should be fired, but it is hard for McCain to fire somebody who is singing a song that Bush wrote."

And George in Texas: "I don't know, but I thought we lived in a free country, where people could say anything they wanted. I have thought that you, Jack, should have been fired for some of the questions you ask. Look where that has gotten me."

If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile. Maybe it's there. Or maybe it's not.